Hague: The future of Europe: freedom and flexibility

Speech to Open Europe

"This is an important time for Europe. One year ago the EU Constitution was rejected by French and Dutch voters, in an unprecedented shock to the process of European integration. Treaties have been rejected in referendums before, but never by two countries, let alone by Member States from the founding Six.

The impact of the shock was matched by the importance of the document the referendums rejected. It was not the first Treaty to signify a great change to the European Union, but it was intended to be a turning point. Quite apart from the changes to voting or EU competences, the attributes it would have given the EU - legal personality, the Charter of Fundamental Rights, a foreign minister, the fact that it was a Constitution, not a simply a Treaty - would have revolutionised the EU. As the German Europe minister at the time described it, it was 'the birth certificate of the United States of Europe', or, in the Belgian Prime Minister's words, the 'capstone' of a 'federal state'.

So the referendums were decisions on the fundamental nature of the European Union. Quite properly, the clear disjunction the referendums revealed between what the peoples of Europe wanted and what many of their political elites thought they wanted deserved serious consideration. So we have had a period of reflection, a period that had been due to end in a couple of weeks but has now been lengthened by a year.

There have been a large number of interesting and thoughtful contributions. They range from the Dutch Foreign Minister's blunt pronouncement that 'the Constitution will stay dead', to fervent German and Italian affirmations that the Constitution must remain the way forward, to French ideas for the implementation of a 'Constitution-light' to the Commission's search for a new Messina declaration.

These contributions deal with the basic questions of what the European Union is for and what its future is to be. And the debate is a serious one: Europe is at a crisis point. The assumptions of the last fifty years no longer hold true. Where once the priority for Europe was political harmony it must now be economic dynamism, and here, thanks to the radical changes the last Conservative Government brought about in the Eighties and Nineties, Britain is well placed to lead and challenge some orthodoxies of recent decades that are now so clearly failing. We must replace the habits of heavy regulation and rigidity with freedom and flexibility. The attempt to create an ever more politically united Europe was a response to the problems of the twentieth century. Now it is time to advocate a Europe of decentralisation and diversity in the spirit of the twenty first century.

So given the nature and the importance of this debate one might have thought that our current Government would have been prominent and eager contributors, not least because of Tony Blair's extraordinary speech to the European Parliament last June. 'It is time to give ourselves a reality check. To receive the wake-up call', he told them. 'The people are blowing the trumpets round the city walls … The people of Europe are speaking to us. They are posing the questions. They are wanting our leadership. It is time we gave it to them.'

The MEPs who applauded so fervently can be forgiven for thinking that such a stirring speech from a Prime Minister would be followed by commensurate action. Those of us with nine years' experience of that Prime Minister know otherwise.

The Government have never treated the debate on the EU Constitution as the opportunity to put forward a modern, forward-looking view. Their objective has been to get away with muddling along with the out-dated concepts of a Europe that is failing its peoples.

In 2000 Tony Blair said that Europe did not need a Constitution. In 2002 he said: 'we do need a proper Constitution for Europe'. By 2003 Peter Hain was saying it was just a 'tidying up exercise', and not important enough for a referendum. But later that year Tony Blair said that holding a referendum would be 'a gross and irresponsible betrayal of the true British national interest' - in other words it was too important. Despite that he was soon in favour of exactly such a referendum - 'to resolve once and for all' where Britain stood in Europe, but the French voted no. This vital mission went the way of every previous statement on this subject. Seven different policies in five years, and all of them based on evasion rather than vision.

I fear this Labour Government is going to repeat the mistake it made when the Constitution first appeared on the agenda. It has no vision for the EU. It therefore reacts rather than proposes and concentrates its political efforts on a damage limitation exercise, trying to make sure that nothing politically impossible comes out of the talks. As Derek Scott, the Prime Minister's former chief economic adviser, said the last time the Constitution was on the table, 'the Government never saw the discussions on the Constitution as an opportunity to stand back and think clearly about the appropriate political and economic framework to sustain the EU … the Government's response was tactical rather than strategic', 'reflect[ing] the view that the best Britain can do is to negotiate "something we can live with"'.

Nothing has changed. A fortnight ago our new Europe minister was asked whether the Constitution were dead. Geoff Hoon refused to say because, he explained, he didn't want to answer immediate questions about what should replace it. This is a fascinatingly coy position to take but it is not leadership. The British Government cannot mould Europe's future while it refuses to take a public stance on a question that will be vital to determining it.

It is the worst kind of folly not to learn from one's mistakes. Time and again this Government's policy on Europe has met with failure. On the EU budget the Government had three clear objectives: first, to limit its size, secondly, to ensure fundamental reform of the CAP; and, thirdly, to keep the British rebate unless such reform occurs. They failed on every one. We were promised that the rebate 'was not up for negotiation' but it turned out that it was negotiable to the tune of £2 billion a year. The fruit of this costly concession? A review of the EU budget with absolutely no guarantees of reform. As one German paper put it, 'Tony Blair began his EU Presidency as a tiger... and has ended up a doormat'.

It is equally unconvincing for Gordon Brown to pose as a champion of European reform. During Britain's presidency we heard many growls from the Treasury about how the Chancellor was standing up for Britain and would stop his feckless neighbour from selling out our interests. But the Chancellor has been all bark and no bite on Europe. He acquiesced in last year's woeful deal on the budget and CAP reform. He preaches deregulation but this Government has imposed £50 billion's worth of regulatory costs on business. He preaches free trade but even during our presidency the Chancellor backed away from arguing the free trade case. As the Swedish trade minister said at the time, 'the French have been very active, not least in the public debate, while there has really been very little said by the free traders'. The Chancellor has been good at lecturing but has yet to show that he is capable of leading, and certainly incapable of leading by example.

In Labour's conduct of European policy there is no sign of a strategic vision, let alone the effort to persuade others of its merits, nor of any bottom line and sticking to it. We mean to do better.

I am a firm believer that Britain's place is in the European Union, a strong player in Europe, not at the margins. But that does not mean that we should abandon our critical faculties in examining the EU's predicament.

We need a realistic assessment of the EU's successes and failures to decide what the EU needs to do more of and what it should stop doing.

It cannot be doubted that the EU has been a major force in securing democracy and the rule of law in many countries that were new to those freedoms. We have seen the EU's effectiveness in the last quarter century in the Mediterranean, we have seen it in the new members from central and eastern Europe since the fall of the Berlin Wall and we see it now in the Balkans and Turkey. Enlargement has been a triumphant success.

EU membership is a sign that you are a decent, trustworthy member of international society. Some countries - Norway and Switzerland - don't need that badge from the EU, which is one reason why they are not members. But to those whose countries in the past have been regarded as corrupt or unstable it is a great goal to pursue. There is also the promise of comparative wealth - the EU requires a functioning market economy - and of new freedoms and opportunities to travel and find work.

These are powerful incentives to change one's country so that it can join the EU. There are those in the EU who make foolish boasts when they compare Europe to the United States, but one can say that the wealthy countries of western Europe have done better in enriching their neighbours and exporting their democratic values than, perhaps, the US has been able to in its southern near neighbourhood.

Enlargement's great success in the recent past leads us to some hard policy conclusions. Romania and Bulgaria's accessions are certain, even if the year is not. But, aside from Croatia, there is no consensus on the ultimate goal of including the whole western Balkans in the EU, let alone Turkey, the Ukraine or Belarus.

We want to see that part of the world stable, democratic, rich and peaceful. We know that offering EU membership is the best incentive to persuade countries to make the hard political decisions that mark the road to that end. And we know the likely cost of refusing entry to the EU: in the Balkans and the Ukraine nationalism, populism, corruption, criminality and a reorientation away from the West and in Turkey either a nationalist authoritarianism or a rise in fundamentalism. That is why we are in favour of sustaining the EU's enlargement and strongly support Turkey's membership, when she meets fully the necessary criteria.

There are those who argue that such an enlargement should be rejected because it would mean the end of the dream of ever closer union. Their kind of ever closer union is not a goal I share, but I would also say that they have mistaken what the European Union is for. The European Union is not an end in itself, but a means to attain common goals and spread shared benefits through a system of co-operation. Blocking further enlargement would be a betrayal of the real European dream.

The other area where the European Union has had some conspicuous success is the Single Market. The success can be described in figures - it is widely accepted that the Single Market makes a contribution to the EU's GDP of 1.8 per cent a year, worth £20 billion annually to Britain and an average increase of wealth in a European household of £3,800. But it can also be described in terms of the real difference it makes to people's lives: whether it is cheaper telephone calls, internet connections and air travel or the ability to work and travel freely across Europe. These achievements are worth cherishing and people's lives are better for them. But we must also acknowledge the significant costs from the burdensome effect of some regulations and tariff barriers.

But the Single Market has still come nowhere near its potential. It is noticeable that intra-EU trade grew faster in the decade before 1992 than the decade after. So I applaud the Commission's renewed efforts to ensure that that we have a real open energy market in the EU - some Member States' vertical integration of their national markets makes them uncompetitive and some partners' illiberal behaviour has made our gas prices, especially for heavy industry, much more expensive than they ought to be. It not only right but essential that the Commission is now acting to remedy this.

These are the EU's proper priorities and, while I profoundly disagree with Commissioner Barroso's view on the Constitution, I do agree that our main aim must be a 'Europe of results', and I congratulate Conservative MEPs, ably led by Timothy Kirkhope, for their sterling work to achieve just that.

The Single Market is of particular consequence to Britain because its promise was the central reason why we joined the then EEC and why people voted to stay in it. So it is particularly worrying not just that so much remains to be done but that some Member States seem to want to put new obstructions on the four freedoms.

There is talk of 'economic patriotism' and 'national champions'. We do not stop our partners' companies taking over their British counterparts, and we benefit from the infusion of investment and expertise. Yet there is too little reciprocity. The Services directive too, which could have done so much to enrich Europe's economies and make life easier for people and businesses, is only making it through in an anaemic form. In global trade some partners have pushed for tariffs on Chinese textiles, footwear and other items. These are profoundly worrying trends, deeply damaging to Europe's real interests and the purchase they have won shows a failure of political leadership. Politicians talk of European solidarity but forget that the most basic form of solidarity in the EU is the right to work and do business on a level playing field. If economic patriotism follows its natural course we will all lose the most tangible benefits the EU provides. Globally, too, Europe's prosperity depends on free trade. Globalisation creates understandable fears but the EU must be a means to help us all take up the opportunities it offers. The EU as fortress Europe may be able to hold off its changes for a little while, but when the inevitable competitive pressures bite they will all the more painful. Seeking to bring short-term comfort to their voters, protectionists are undermining the EU's prime purpose and merely postponing the day they must face some unpleasant facts.

Europe is in the grip of a slow burning crisis. Many of Europe's economies are performing poorly and the continent is in relative economic decline. According to the European Commission, by 2050 the US share of world output will rise to twenty six per cent, while Europe's will have shrunk to only ten per cent. Much of this difference is down to lower productivity growth and Europe's shrinking working population.

The Lisbon agenda - the aim of making the EU the world's most dynamic and competitive economy by 2010 - was supposed to be the answer. At the time the Prime Minister proclaims a 'sea change in European economic thinking', marked, he said by 'concrete measures with clear deadlines'. It was yet another bold Blair assertion that does not correspond in any way with any observable reality. Romano Prodi described the Lisbon agenda as a 'big failure'. He was right.

These figures are not merely abstract numbers of concern to economists. European economic underperformance has had a terrible impact on people's quality of life, in particular through mass unemployment in what one might call the Carolingian core of Europe. In France, for instance, unemployment and youth unemployment are twice as high as in Britain. To have achieved such high levels of unemployment at a time when the world economy has been growing solidly for more than a decade must count as a monumental failure of policy. And European people will see their relative wealth shrink too. The American economy is currently about a fifth larger than the EU, but by the middle of this century it will be two-and-a-half times the size, the most extraordinary loss of a region's weight and influence in peacetime. It will mean that 'at current trends, the average U.S. citizen will be twice as rich as a Frenchman or a German in 20 years'. As the 2004 Kok report on the Lisbon strategy said, 'at risk … is nothing less than the sustainability of the society Europe has built and to that extent, the viability of its civilisation'.

And that ominous assessment is borne out fully when we look at the state of the knowledge economy. Only two of the world's top twenty universities are still in Europe and they are Oxford and Cambridge. Japan has one but the United States has seventeen. More European PhD students at American universities stay there than come back. And the research and development gap between Europe and the rest of the world is widening further. The increase in corporate research and development investment for 2004-05 was two per cent in Europe but seven per cent in the US and Asia. Europe's economies have lost their cost advantages. If Europe loses its knowledge advantage as well to China, India and others its economies will become utterly uncompetitive within our lifetimes.

European countries' domestic efforts at reform have enjoyed mixed success and it is right that the focus should be there - as we discovered in the 1980s economic renewal has to be achieved nationally and requires political courage. But the EU has a role and must bear part of the blame.

Serious attention should be paid to the fact that, according to the latest Burdens Barometer, three quarters of costs imposed on business by new regulations since 1998 are European in origin. It may be that some of those regulations are ones that would have been thought desirable in any case and it may be that part of the costs are due to domestic gold-plating, but here surely is proof that the EU's excess of legislation is damaging its economic aims. And it is not simply the fact that the EU regulates too much, it is also how it regulates. According to no less an authority than the Trade Commissioner Peter Mandelson, a trustworthy source if ever there were one, if European regulation matched best practice, Europe's productivity would grow by 2 to 6 per cent. According to the Treasury, if the EU had the same record as the United States in creating jobs, 28 million more people would be in work in the European Union today.

These show fundamental weaknesses in the way the EU carries out its business. They are improving somewhat - regulatory impact assessments are much commoner than they were, but they also raise the question of whether the EU should be doing all that it does and what it should be doing more of.

Seeing, as we have, Europe's grim economic prospects the EU's main purpose must be to make the Single Market work better, to lift the remaining barriers to economic growth and cut the costs to business. That, in an enlarged community, should be the European Union's driving purpose.

It is not hard to discern what the wrong priority is - institutional self-aggrandisement. Institutional self-aggrandisement or empire building places the EU institutions' interests before the needs or desires of the peoples of Europe. It is a distraction from the delivery of results. Too often when a shared problem arises the question is not 'how can we best solve this' but 'how can we use this to further integration'.

The current example is the proposal to move intergovernmental decisions on policing and criminal justice co-operation under the European Commission and Parliament's power and to abolish national vetoes - third pillar to first pillar in the jargon. It is not clear that this will improve results but it is clear that this is a blow to sovereignty in an area where people hold their national governments directly accountable. It will be discussed at next week's summit and the Government says it has an open mind. It should have a clear mind - it should be rejected. This move would also, incidentally, be the implementation of part of the European Constitution by the back door and without the British people's consent.

Equally, those who wish the EU to supersede its Member States as a foreign policy actor have as their prime aim not the furthering of our common interests but the increase of the EU's power. Many of the advocates of that goal seem more interested in creating a counterweight to the United States than the propagation of our common values of freedom and democracy. That is a short-sighted and somewhat petty approach. Britain's view should be clear - warm co-operation on foreign and security policy but a firm opposition to foreign affairs and defence becoming an EU preserve. So the small steps that are being proposed on this journey - an EU diplomatic service for instance - must be unacceptable. The current Government is at fault for not taking a clear stand here.

So what should Europe's priorities be? We are not short of shared problems: the current Doha trade round is deadlocked, energy security is of more concern than at any time since the 1970s, the Middle East is at a new level of instability and the developing world's plight is of greater interest to our societies than ever before, both to our consciences and for its effect on global migration flows.

European countries need to find answers to these problems, and some of those answers may well involve common action. I will single out two examples.

First: trade. It is the motor of economic growth across the world. Doha may fall because, in part, of some European countries' agricultural protectionism. It may be too late to hope realistically for much movement there. If there is no breakthrough we must, without abandoning the aim of future success, look for other ways to break down barriers to trade. I have been surprised by the breadth of support across Europe for a transatlantic free trade area, first proposed by Sir Malcolm Rifkind. It is a logical extension to the Single Market - if we think that removing barriers to trade within Europe is a good thing removing the transatlantic barriers would be even better. As the developed countries' businesses on both sides of the pond come under increasing competitive pressure from new economic powers like China and India we need to maximise our enterprises' access to markets. Rows over tariffs and subsidies for planes and steel have proved economically damaging for Europeans and Americans, as well as damaging international relations. A transatlantic free trade area's benefits are needed. It is an idea whose time has come and should be championed by the Government of the United Kingdom.

Secondly, energy. Energy security and energy supply are growing European concerns. The EU has an essential role here - as I said earlier Commissioner Kroes' efforts to secure a more efficient market with cheaper prices for consumers are admirable. We need a collective approach to stop energy being used as a political weapon and ensure that it is fairly bought and sold in free markets that are transparent and open. This must be a priority for the EU. It will be an increasingly important area in the years ahead. Protectionist or nationalist behaviour risks jeopardising the massive gains in prosperity that have been achieved in the last fifteen years.

With the right priorities the European Union can open up freedom and opportunity for our citizens, a mutual support in the age of globalisation. But the old priorities are becoming a serious drag.

A common thread reasserts itself in the search for solutions and results - the need to extend freedom and flexibility and the barrenness of the old approach of more centralisation and more control.

This also applies to the development of the EU's structures. We need to recognise that Member States have a variety of ambitions in the European Union, political and economic. In Britain and some other countries we want the EU to do a great deal less. Others, like the Dutch, want the EU to do less in some areas and more in others while those like the Belgians see a need only for increases in the EU's power.

It is not just a variety of views about what powers the EU should have. The visions are different. Some people honestly and sincerely aspire to a United States of Europe. They see that as the end-point of ever closer union. We emphatically do not. As I said earlier, we see the EU as community of shared values, a common house in which we can work together.

The question before us is now to reconcile these differing aspirations. That question's urgency has had wider recognition since last year's referendums. Those who try to explain away the results as being not a 'no' to the Constitution or further integration but as 'noes' to Turkey or globalisation are not being honest with themselves. Subsequent polling analysis shows that Turkey was not a leading issue in either France or the Netherlands. One can argue that the French vote was in part a protest against that country's current domestic ills and a register of a fear of economic liberalisation, but the Dutch vote was a clear rejection of an EU that is too powerful, too unaccountable and too wasteful of European taxpayers' money.

Regrettably, I do not see a widespread recognition of that fact in the current debate. But as someone who wants the European Union to succeed I passionately hope it eventually will be. Last year's crisis will be repeated until it is recognised that many European want if anything less integration, not more.

The Conservative Party has for many years advocated an answer to this divergence of aims - an open, flexible Europe. Both Michael Howard and I made speeches advocating this when it was our turn at the Conservative Party's helm. Our aim must be to let each country find the level of integration it is most comfortable with in the European Union. As Michael Howard said in his speech in two years ago, in time we will need a broad approach to a flexible Europe, with the Single Market at its core. Indeed, a further enlarged Europe will only be able to work with such a model. This approach, guaranteeing our citizens the rights they enjoy from being in the EU with the flexibility to accommodate Member States' differing goals, would bypass many of the institutional debates that cause the EU to be mocked for navel-gazing. Politicians' energies could be diverted to the many other pressing problems we face.

But there are other areas where it may be beneficial for Member States to find their own way. It is widely agreed that the EU should only act where it adds value but the clear evidence is that it is acting in many areas where it does not. In an increasingly competitive world we simply cannot afford to have Britain held back by the burden of unnecessary EU regulation. That is why we have said that we should reassert national control over social and employment legislation. To be competitive with the emerging giants such as China and India, Britain needs to be able to operate a highly flexible labour market. British jobs depend on British Governments being able to retain and enhance that labour market flexibility.

Or take the Common Agricultural and Fisheries Policies. Both have failed, economically and environmentally. Conservatives have long sought more local and national control in both these areas as part of the solution both to the problems these polices throw up and the ones they try to solve. We are going to look closely at ways to achieve our three aims in these areas: policies that encourage sustainable fishing and farming communities, do not place excessive burdens on tax payers and that enrich and protect the environment.

Now the British Conservative Party is not alone in our call for more flexibility. As the Dutch Foreign Minister Bernard Bot said in a speech even before his country's referendum result, 'the EU needs to practise self-restraint. It should look expressly at those parts of common policy for which member states could take responsibility again ... The policy areas I am thinking of here include cultural policy, certain parts of the common agricultural policy, and … health care and social policy'.

We are left with a clear conclusion. Reviving the Constitution would not only be undemocratic, it would be exactly the wrong thing to do. The wrong priority - political rather than economic, the wrong project for politicians' energies. Our Government ought to be making that very clear. They should be driving hard on the economic priorities and make it clear that there is no future for the Constitution. That would be the real leadership in Europe this Government has often spoken about but has yet to provide.

There is a widely held conviction in Britain that EU integration has gone far enough. We recognise that conviction and the Government should too. People feel that Brussels' power has grown without their consent. As David Cameron has said, it is a pretty good principle that elected representatives should not give up the powers they were elected to wield without asking the people who elected them first. There should be no integration without consent. Under a Conservative Government there would be no Treaty changes that transfer more competences to the EU without a referendum.

But there are proposals on the table that could improve the EU's accountability and efficiency.

The EU does face serious issues of accountability and efficiency. If the six month rotating presidency does need reform then the Government should be clear that the Constitution's answer - a permanent president, representing the EU on the international stage - is a wrong one. It would be another step towards turning the EU into a state. But the proposal that Lord Owen has advocated, of team or grouped presidencies somewhat similar to the current troika system, has strong attractions. The rotating presidency ensures that each country has at some point a special input into the EU. It is a reminder that the Member States are the foremost entities in the EU. Team presidencies could keep those cherished features while ensuring that the Council has a system efficient enough to cope with an enlarged EU.

Two other measures currently being discussed would also be welcome: the national parliaments' yellow card on subsidiarity and open voting in Council. The first is still thoroughly inadequate but can be seen as going in the right direction in giving national parliaments a direct say over subsidiarity.

As for open voting in Council, it would be a small but much needed boost to openness and accountability in the EU. There are proposals our Government should be championing, helping to set a constructive agenda rather than following in others' slipstreams.

National parliaments, for all our problems with election turn out, are still the main political bodies people identify with and look to for accountability. Their role must increase if we are to restore public faith in the EU. So how we handle European legislation at Westminster is important. It is widely acknowledged that the current system is seriously inadequate. Most European legislation remains obscure to both Parliament and public. MPs and peers have little control over what the Government does and there are insufficient means to ensure that European legislative proposals are properly debated. The pamphlet published by Open Europe, with an excellent foreword by my colleague Michael Gove, is a thorough examination of the issue and gives interesting solutions to the problem. If this Government fails to improve the situation, we will reform the system to give Parliament a greater say over EU legislation.

These issues are before us now and, presidency reforms aside, could be acted upon now by interinstitutional agreement, not Treaty change. Yet the Government have said practically nothing on proposals to would make the EU more democratic and accountable, even during Britain's presidency. This inertia as period of reflection is added to period of reflection threatens to turn it into an age of paralysis. A Government that does nothing is likely to find things done to it.

It is because we want to pursue new and modern ideas for Europe that we are working to form a new group in European Parliament to champion the open, reforming EU we believe Europe needs.

I will sum up with this thought. I believe that there is a generational change taking place in attitudes to the EU that is yet to be reflected by most governments, including ours. Britain has the opportunity to drive a new agenda for the future of Europe, a Europe that sees globalisation as an opportunity, not a threat. This requires a fundamental change in the attitudes and received opinion of the past fifty years.

I would suggest that far too much time and energy has been absorbed on false paths of integration leading to a dead end. Talk of missing the European train is seriously misplaced when the buffers are so clearly visible ahead. Driving EU institutional self-aggrandisement is not the best use of anyone's time. If the current debate on the outcome to the referendums can lead to politicians devoting more of their time to considering the great issues of our day that would be a huge achievement. But if nothing changes, if the EU as a whole continues to think that the establishment of a Constitution should be its chief priority it will do nothing for our citizens and give succour to those who claim that we are now facing a set of institutions that are beyond reform.

The old rigid model is out of date. The European Union must make itself relevant by giving its peoples the freedom and flexibility they need in the twenty first century.

Europe's crisis demands more than paralysis from the British Government. It requires fresh thinking and a reinvigorated approach. If the party in power is not capable of providing that it is yet another reason for a change of government."